According to the DM: Authorities may be wishing to utilize the state's preventative detention laws for the first time since they came into effect, in which police are legally allowed to detain a suspect for up to seven days should they believe the person poses a threat or security risk, Herald Sun reported.

Premier Daniel Andrews said the attack was 'evil and terrifying thing that's happened in our state.'

'Our thoughts and prayers are with everybody touched by this, but we will not be defined by this,' he said.

Victorian Liberal Party leader Matthew Guy said 'we must eradicate this sort of thing,' in a media conference shortly after.

'Every resource should be going into keeping Victorians safe.'

The offender pursued the officers around a tree as they tried to avoid his punches and persuade the man to surrender, and a courageous bystander tried to prevent the attack by running him down with a shopping trolley.

The officers then withdrew to the other side of the road as the bearded attacker with a shaved head and dressed in a long brown tunic, pursued them as horrified bystanders called on police to shoot him.

The man again attempted to stab and slash at the officers several times before one policeman unsuccessfully tried to taser him.

His partner then shot the assailant in the chest.

The knifeman grabbed his chest and fell to the ground where he was quickly arrested on the pavement by two plainclothes officers and raced to hospital under police guard, where he later died on the operating table.

The man and his family were acknowledged to the Australian Secret Intelligence Organisation, the country's domestic spy agency.

His possible links to known terror plotters and extremist elements of the North African community in Australia are being investigated.

The man moved to Australia from Somalia in the 1990s, Victoria Police commissioner Graham Ashton said, and had a record of 'minor' offenses about 'cannabis use, theft, and driving offenses.'

'He is known to police and is known mainly in respect to relatives he has that are certainly persons of interest.'

'He is someone that is known to both Victoria police and at a federal level,' Commissioner Ashton said.

'There is no ongoing threat, but this is an ongoing investigation. It will be handled by the counter-terrorism command and Victoria Police.'

Prime Minister Scott Morrison also published a statement condemning the actions of the assailant.

'Australians will never be intimidated by these appalling attacks, and we will continue to go about our lives and enjoy the freedoms that the terrorists detest,' he wrote.

'I praise the bravery of the police who were on the scene and took action and those who selflessly came to the assistance of the injured and provided comfort to the distressed.'

Opposition leader Bill Shorten also commended the bravery of 'our extraordinary police officers who acted so swiftly and professionally in Melbourne's CBD... and the passers-by whose first instinct was to go to the aid of others.'

'Officers were confronted by a male brandishing a knife and threatening them,' Superintendent David Clayton said.

Counter Terrorism Command in conjunction with the Homicide Squad will investigate the incident, but police do not recognize any ongoing threats at this stage and are not looking for anyone else in connection to the attack.

'The exact circumstances are yet to be determined at this stage. The area has been cordoned off, and the public is urged to avoid the area,' they said earlier.

The attacker was taken to Royal Melbourne Hospital in a critical condition after he was shot in the chest, where he later died.

One of his victims had a head injury, and another an unknown injury.

The men were 26 and 58-years-old. Witnesses said one of those injured was a security guard who tried to intervene.

A police officer sustained minor injuries but was attended at the scene.

Another man, in his 60's, died of his injuries at Royal Melbourne Hospital.

'People were trying to help victims because he was just knifing at random. The security (guard) from building next door was also stabbed, but I saw he was sitting up, so we know he survived,' a witness told the Herald Sun.